What is a Food Industry ETF
A food-industry ETF is an exchange-traded fund investing in food and beverage companies.
BREAKING DOWN Food Industry ETF
A food industry ETF, as with other index ETFs, aims to match the investment performance of its underlying index. Only a few ETFs invest solely in this sector, but food and beverage companies account for a large proportion of the holdings of consumer staples ETFs, which outnumber food and beverage ETFs.
The sector encompasses companies that manufacture and distribute a wide range of food and beverages, alcohol, and cigarettes. Subsectors can run the gamut, including wheat and grains, sugar, coffee, and livestock. Also included in the food industry sector are U.S. fast-food chains with a global presence.
The restaurant industry has been a growing sector, offering new ETFs for investors looking to capitalize on a changing industry, which is being shaped by an upsurge in consumer adoption of new technology. This technology includes mobile apps like Seamless, and payment options through kiosks and other apps. So while restaurants can be a dicey investment, the Motley Fool pointed out that The Dow Jones Restaurant and Bar Index, made up of the biggest U.S. companies in the industry, has doubled three times in the last decade.
Other food-related trends that have spawned new ETFs include “socially responsible” funds that focus on organics or companies that have a positive track record on their relationship with the environment and social issues.
How a Trade War Might Affect Food Industry ETFs
The Trump Administration’s tough talk on trade in 2018 sparked fears of a global trade war. Those fears spurred investors to shift around portfolios and look to the consumer staples sector for a safe bet. Consumer staples generally perform well in periods of uncertainty, as demand for food doesn't dwindle. A Bloomberg report showed the Consumer Staples Select Sector SPDR Fund (XLP) secure $583 million of inflows in June 2018, with the ETF gaining 3.8% in June. Compare this to the S&P 500 index’s 0.5% increase.
This shift in the market came after the declining performance among household food industry names such as Kellogg Co, Sysco, and McCormick & Co in early 2018, all of which subsequently bounced back. Gina Sanchez, CEO of Chantico Global, an asset allocation consultancy servicing institutional investors, was interviewed on CNBC's "Trading Nation" in July 2018, and highlighted consumer staples as a low-cost segment with outperformance expected in the last half of the year.